In Zimbabwe’s evolving tax landscape, businesses face increased scrutiny from the Zimbabwe Revenue Authority (ZIMRA). From intensified audits to data-driven risk assessments, companies must now adopt a more structured, proactive approach to tax compliance. ZIMRA has significantly stepped up its enforcement activities. Businesses are increasingly being audited, investigated and subjected to stricter penalties, including garnishee orders and reputational consequences. The audit scope has expanded to cover areas such as VAT refund fraud, foreign currency misstatements, transfer pricing (TP) and non-resident taxation. Additionally, ZIMRA now relies heavily on third-party data and digital analytics to identify inconsistencies creating more pressure on taxpayers to maintain accurate and well-documented records.
Several key areas frequently draw attention during audits. In the area of transfer pricing and intragroup transactions, ZIMRA demands strong documentation, local benchmarking, and board approvals for transactions such as management fees, royalties, and intercompany loans. Income tax claims for items like bad debts, legal fees and entertainment are often disallowed unless they meet the strict criteria outlined in section 16 of the Income Tax Act. For businesses with foreign currency receipts, correct currency usage is vital when settling Quarterly Payment Dates (QPDs). In terms of management and shared services, deductions are only allowed where services are rendered beneficial to the entity and comply with both the 1% cap and transfer pricing rules. ZIMRA also scrutinizes VAT and income tax reconciliations for inconsistencies in turnover, fringe benefits, payroll data and banking records. Withholding tax compliance is closely monitored, with non-compliance around ITF263 requirements and misapplication of WHT on dividends, interest, and cross-border services resulting in severe penalties. Where documentation is weak or inconsistent, ZIMRA increasingly issues estimated assessments, placing the taxpayer in a defensive position.
To improve resilience against audit risks, companies can adopt an internal audit readiness framework built around several key components. Documentation is fundamental; all tax returns should be backed by working papers and internal approvals. Withholding tax deduction must be well recorded and all filings stored centrally for ease of access. Systems and data integration are also critical. Businesses should reconcile ERP data with tax filings, deploy automated calendars for filing alerts and ensure consistency across payroll, inventory and accounting records. A formally approved Tax Procedure Policy Manual (TPPM), alongside tax-specific checklists for VAT, PAYE, and income tax, helps maintain internal control and compliance. Tax compliance should be a regular boardroom agenda item, supported by dashboards tracking key tax performance indicators. Regular training and awareness initiatives ensure teams stay updated on tax developments, ZIMRA audit trends and compliance expectations.
Strong internal controls are essential to detect and correct errors before submission. Segregation of duties, defined approval workflows and periodic reconciliations must be enforced. On transfer pricing, businesses must ensure compliance with SI 109 of 2019 by maintaining contemporaneous documentation, conducting functional analysis and preparing annual local benchmarking studies. These documents must be ready for submission within seven days of a ZIMRA request.
Practical steps to enhance audit readiness include reconciling tax filings with accounting records on a monthly or quarterly basis. This includes aligning PAYE with payroll and ensuring VAT claims correspond with actual fiscal invoices. Businesses are encouraged to consult qualified tax advisors or legal practitioners on complex tax matters and to retain written opinions as part of their audit defense file. Periodic internal or third-party tax health checks can help identify compliance gaps early. Companies should simulate audit scenarios internally and keep a detailed record of all correspondence with ZIMRA, including objections, assessments and appeal outcomes.
Tax disputes often arise from avoidable mistakes, such as poor documentation, failure to meet deadlines, or reactive rather than strategic responses to ZIMRA queries. Businesses should instead engage professional advisors early and respond to audits with accurate, consistent and well-supported information. Voluntary disclosure is another powerful tool. When the risk of detection is high especially through third-party data, voluntary disclosure can mitigate penalties and interest. However, this approach must be strategically managed to avoid opening the door to broader audits. Timing, scope, and framing of disclosures should be guided by professional advice.
Several technical but frequently overlooked areas can also create audit exposure. For example, companies with foreign currency income exceeding 50% must compute tax on a 50:50 USD basis, regardless of actual receipts. Income tax returns must be supported by valid fiscal invoices featuring verifiable QR codes that match the FDMS system. Transfer pricing documentation must reflect economic substance and pricing rationale and must be submitted within 7 days upon a written request from the Commissioner General. Intra-group management fees must be properly documented and must adhere to the 1% cost cap; any excess is disallowed and further attracts a 15% withholding tax. Consistency checks are essential discrepancies between payroll records (P2), tax returns and financial statements often trigger audit queries.
A robust Taxpayer Compliance Toolkit enables continuous improvement in governance. Key questions include whether tax is considered a board-level risk; whether a Tax Policy Manual is maintained and regularly reviewed; whether transfer pricing risks are evaluated annually; and whether the company is fully fiscalised and sharing data with ZIMRA. Companies should also ensure they maintain up-to-date calendars for returns, penalties and audits, perform third-party reconciliations with ZIMRA, NSSA, payroll and ZIMDEF and run a strong training program for tax and finance personnel.
As ZIMRA intensifies its audit activities, businesses must rise to the challenge with robust compliance frameworks, proactive audit readiness and a culture of accountability. By adopting the tools and practices outlined above, companies can not only mitigate financial and reputational risks but also foster a more cooperative relationship with tax authorities—one that supports long-term sustainability and confidence in Zimbabwe’s dynamic tax environment.